Hospital 'Observation' Status Prompts Federal Class Action Suit

Cheryl Clark, November 9, 2011

Medicare wrongfully denies thousands of beneficiaries coverage of acute, post-acute and prescription drug expenses each year because hospitals do not "admit" them as inpatients for at least three days as they should, claims a class action lawsuit filed by two advocacy groups.
Instead, the care of these patients is classified under the controversial "observation" category—intended for a period of up to 48 hours—even though their hospital stays may last as long as seven days and sometimes longer.

In each case, the lawsuit says, patients "received a hospital level of care and should have been formally admitted."

The Center for Medicare Advocacy and the National Senior Citizens Law Center filed their petitions this month against Health and Human Services Secretary Kathleen Sebelius and names seven patients as plaintiffs. They ask for declaratory, injunctive, and mandamus relief in the U.S. District Court in the District of Connecticut.

"We want to end the use of observation status as a way of depriving people of Part A Medicare coverage," said Gill Deford, the Center for Medicare Advocacy's Director of Litigation, who says the advocacy groups filed the claim as a class action because they are "getting overwhelmed by these complaints" from around the country.

Collectively, the seven patients or their estates were billed more than $130,000 for prescription drugs, skilled nursing facility care, and certain outpatient hospital care services under Part B that the advocates say Medicare should have paid under Part A, according to the claim.

Additionally, the complaint says that Medicare fails to notify the patients that they are on "observation status," and many don't find out until after their claims are denied, or they are notified by the skilled nursing facility that Medicare won't pay the bill.

"Beneficiaries who are placed on observation status are not informed that they have any appeal rights to challenge that placement and to contend that they should be formally admitted and be covered under Part A," the lawsuit says.

"If you're going to have a process or system that effectively deprives people of coverage, the government has a basic obligation under due process to give them information about it and the right to challenge it," Deford insists.

The complaint was filed on behalf of seven individuals denied coverage in Massachusetts, Connecticut and Texas, or the executors of their estates because some are now deceased.